Uncommon Wisdom

Cisco reported its quarterly earnings yesterday, and while its numbers were better than expected, there was a problem with the company’s guidance. In effect, Cisco is projecting the current problem will extend through April and has reduced year-over-year guidance accordingly.

The Street saw this as a bad sign. We’re actually surprised Cisco was willing to guide at all beyond the current quarter given visibility. It is likely in our view that Cisco is hearing what we are, which is that if there are convincing signs of recovery by late May, a good piece of 2009 budgets will be restored and second-half spending will counter some (but not all, particularly for the enterprise) of the first-half slump.

The big problem, which Cisco did not mention, is that EU markets will lag U.S. recovery significantly and thus its export opportunity will be lower, even without considering the strengthening dollar. Still, Cisco has shown that it can hang on better than people thought, and this was also the case with Alcatel-Lucent yesterday. Chambers was also upbeat on a recovery.

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